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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Therchik v. Grant Aviation, Inc. (7/25/2003) sp-5715

Therchik v. Grant Aviation, Inc. (7/25/2003) sp-5715

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA
                                

RAYMOND J. THERCHIK,          )
individually and as Personal       )    Supreme Court No. S-10437
Representative of the Estate of Isadore )
Therchik; KATIE M. TONY, Personal  )    Superior Court No. 4BE-00-
280 CI
Representative for the Estate of        )
Theresa Tony and the Estate of Henry    )    O P I N I O N
Tony; JIMMY TONY; NICK        )
THERCHIK; and LAURA           )    [No. 5715 - July 25, 2003]
THERCHIK,                     )
             Appellants,      )
                              )
     v.                       )
                              )
GRANT AVIATION, INC.;         )
R. BRUCE McGLASSEN; and       )
MARK W. HEIKEL,               )
                              )
             Appellees.            )
________________________________)


          Appeal  from the Superior Court of the  State
          of  Alaska, Fourth Judicial District, Bethel,
          Mary E. Greene, Judge.

          Appearances:  Daniel C. Kent, Law  Office  of
          William   G.   Azar,  P.C.,  Anchorage,   for
          Appellants.   Daniel  T.  Quinn,  Gregory  R.
          Henrikson,  Richmond & Quinn, Anchorage,  for
          Appellees.

          Before:    Fabe,  Chief  Justice,   Matthews,
          Eastaugh, Bryner, and Carpeneti, Justices.

          EASTAUGH, Justice.

I.   INTRODUCTION

            This  case  concerns  the  validity  of  a  liability

insurer's endorsement limiting  coverage of Alaska Civil Rule  82

attorney's  fees  awards otherwise covered by  its  policy.   The

limiting  endorsement Houston Casualty Company attached to  Grant

Aviation's  policy deviated from the model form  adopted  by  the

Alaska Division of Insurance and had not been preapproved by  the

division's  director.  We conclude that the endorsement  did  not

"conform  with"  the model form and therefore violated  3  Alaska

Administrative Code (AAC) 26.550 (2000).  We also  conclude  that

AS  21.42.220 does not render the endorsement enforceable against

the  insured.  We therefore reverse the judgment entered  against

the  claimants and remand for calculation of the attorney's  fees

recoverable under the insurance policy.

II.  FACTS AND PROCEEDINGS

           Raymond Therchik, Nick Therchik, Laura Therchik, Katie

Tony,  and  Jimmy  Tony  sued  Grant  Aviation,  Inc.,  R.  Bruce

McGlassen, and Mark Heikel (collectively "Grant Aviation")  after

an  airplane  owned and operated by Grant Aviation  crashed  near

Bethel  in  1999, killing family members of the plaintiffs.1   We

refer  here  to  the plaintiffs collectively as the  "Therchiks."

Houston  Casualty Company had issued a policy to  Grant  Aviation

insuring it against liability for damages.  The language  of  the

policy also covered Grant Aviation's liability for "all costs"  -

and therefore attorney's fees - awarded against Grant Aviation in

addition to the applicable facial limit of liability.2  This "all

costs"  provision potentially required Houston  Casualty  to  pay

"unlimited" attorney's fees awarded under Alaska Civil  Rule  82,

i.e., a Rule 82 attorney's fees award based on the full amount of

all  damages  awarded at trial against Grant  Aviation,  even  if

those  damages exceeded the policy's facial limits.   The  policy

Houston  Casualty  issued  to Grant  Aviation  also  contained  a

separate  provision that attempted to limit the Rule 82 coverage.

That  provision,  Endorsement 8, provides that  the  policy  only

covers  Rule  82 awards based on a final award not exceeding  the

policy's applicable facial limits of liability.3

          In 2001 the Therchiks and Grant Aviation entered into a

partial   settlement.   Per  the  settlement  agreement,  Houston

Casualty paid the Therchiks the facial liability limits of  Grant

Aviation's insurance policy - $500,000 per seat - plus $52,500 in

undisputed  attorney's  fees per seat.  Per  the  agreement,  the

parties  agreed to litigate in the existing lawsuit the  question

whether  Houston Casualty owed additional attorney's fees  beyond

$52,500 per seat or had successfully limited its Rule 82 coverage

through Endorsement 8.

           The  Therchiks  claimed  that  Houston  Casualty  owed

unlimited attorney's fees under the policy language covering "all

costs  taxed  against  the Insured in any suit  defended  by  the

Company."   Grant Aviation argued that Endorsement 8  effectively

limited  Houston  Casualty's Rule 82  liability.   The  Therchiks

argued  that Endorsement 8 was unenforceable because it  did  not

include  the exact language of Notice A, a model form adopted  by

the  Alaska  Division of Insurance, and had not been approved  in

writing  by the division, per the alternative requirements  of  3

AAC  26.550.   Notice  A is one of four model  notice  forms  the

division drafted and adopted by reference in 3 AAC 26.550.  It is

undisputed  that Notice A is the applicable notice form  for  the

type of insurance policy at issue here.

          The superior court held that although Endorsement 8 did

not "conform with" Notice A, it was "substantially equivalent" to

Notice  A.   The  court accordingly enforced  Endorsement  8  and

granted summary judgment for Grant Aviation.

          The Therchiks appeal.

III. DISCUSSION

          A.   Standard of Review

          We review grants of summary judgment de novo.4  We will

affirm  a  grant  of summary judgment "if there  are  no  genuine

issues  of  material fact and if the moving party is entitled  to

judgment  as  a  matter of law."5  We review  questions  of  law,

including interpretation of statutes, regulations, and contracts,

using our independent judgment.6

B.              The  Therchiks  May  Challenge  the  Validity  of
          Endorsement 8 Under  3 AAC 26.550.
          
           Grant  Aviation argues in passing that  the  pertinent

statutes   and  regulations  "contemplate  enforcement   by   the

director,  not  private  parties."   It  notes  that  the  Alaska

Division of Insurance may impose penalties on insurers that  fail

to file required forms.

           But  Grant Aviation points to no statute or regulation

that prevents private litigants in civil actions from challenging

the  validity  of insurance policy provisions that conflict  with

substantive  requirements of state statutes or regulations.   Nor

does  it refer us to any opinion in which we have prevented civil

litigants from doing so.

           The  issue  ultimately before us is whether  a  policy

provision  that attempts to limit coverage is enforceable  if  it

differs  from  the  form  required by a  state  regulation.   Our

opinions have often dealt with claims brought by private  parties

challenging  the  validity  of policy  provisions  that  arguably

conflict  with  state statutes or regulations.7   We  have  never

intimated  that  private  parties  are  unable  to  litigate  the

validity of those limiting provisions.  Our opinions holding that

particular provisions do not comply with statutory and regulatory

standards  tacitly acknowledge that private litigants can  obtain

rulings about the validity of such provisions.8

          Although 3 AAC 26.550 is silent on the issue of private

enforcement, we have approved private actions to enforce Title 21

requirements  on several occasions.9  For example,  in  Peter  v.

Schumacher Enterprises, Inc., we held that an insured could bring

a  private  cause  of  action in tort alleging  that  an  insurer

violated  AS  21.89.020(c) and (e).10   We  recognized  that  the

statutory remedy in Title 21 for violation of AS 21.89.020(c) and

(e)  was a civil penalty of not more than $2,500 assessed by  the

state  in  administrative  proceedings  before  the  Division  of

Insurance.11  We observed that the $2,500 penalty was  relatively

modest,  and  that the enforcement resources of the  Division  of

Insurance were necessarily limited.  We further observed:

          Without  a  tort remedy it seems likely  that
          many   violations  of  the  requirements   of
          subsections (c) and (e) would go unredressed.
          Further, it is difficult to see how providing
          an  implied tort remedy could interfere  with
          state  enforcement.  The tort  action  should
          provide  a  meaningful incentive to insurance
          companies   to  comply  with  the   statutory
          requirements.[12]
          
           Similarly,  allowing private parties to  litigate  the

enforceability  of  provisions  such  as  Endorsement   8   gives

insurance  companies  an  incentive to  comply  with  the  notice

requirements of 3 AAC 26.550 if they wish to limit their Rule  82

coverage and expose their insureds to attorney's fees awards that

may not be fully covered under their policies.

          Grant Aviation relies on Harper v. K & W Trucking Co.,13

in  which  we rejected an employee's claim to recover a statutory

penalty for an insurer's violation of former AS 21.89.030.14  That

statute  required  insurance  companies  to  pay  settlements  or

judgments with negotiable bank checks.15  The employee in  Harper

received  a settlement payment for a workers' compensation  claim

in the form of a "payable through" draft instead of a bank check,

in violation of that statute.16  We held that the employee was not

entitled  to  recover the statutory penalty because AS  21.89.030

"is  an administrative tool for use of the division of insurance,

not private parties."17

           Harper  does not control here.  In denying  a  private

right  of  action,  we  differentiated  between  a  statute  that

"directly  addresses  the  effect of  negotiable  instruments  on

underlying  obligations" and AS 21.89.030, which  "concerns  only

the  form  of  payment which must be used for settling  insurance

claims,  not  its  effect  on  an underlying  obligation."18   We

reasoned  that  a  private cause of action was not  necessary  to

enforce  a statute that was primarily an administrative tool  for

the division.19

           Unlike  AS  21.89.030, 3 AAC 26.550 is not  merely  an

administrative    tool    employed   to   facilitate    insurance

transactions.  Rather it is intended to force insurers to  comply

with  proper notice requirements to protect insureds'  reasonable

expectations.20  It therefore properly bears on the validity of a

policy provision that limits coverage.

           Because a dispute about whether a limiting endorsement

"conforms  with" Notice A necessarily assumes that  the  director

did  not  approve  the limitation before the insurer  issued  the

endorsement,  it  almost  inevitably will  arise  only  after  an

accident  occurs.  Post-accident agency enforcement will  provide

little  relief to insureds whose rights may have been fixed  when

the  loss  occurred.  Allowing the interested private parties  to

litigate  the  validity  issue  is  a  useful  way  to  encourage

compliance.  We therefore hold that private parties may  litigate

whether  an  endorsement  attempting  to  limit  attorney's  fees

coverage is enforceable if it arguably does not comply with 3 AAC

26.550.

           Grant Aviation also argues that the Therchiks are  not

the   assignees  of  Grant  Aviation's  rights  against   Houston

Casualty.  But Grant Aviation does not argue that the absence  of

an  assignment altogether prevents the Therchiks from  seeking  a

declaration  that  Endorsement 8 is invalid.   Such  an  argument

would   be  inherently  inconsistent  with  the  terms   of   the

settlement,  which  Grant  Aviation characterizes  on  appeal  as

providing  that "the settling parties will abide by the  ultimate

court  ruling on the one remaining issue - the extent of attorney

fees  owed  under the policy."  The Therchiks and Grant  Aviation

(and, we assume, Houston Casualty) agreed to settle on terms that

expressly  permitted the lawsuit to determine "whether there  are

any  additional amounts in . . . Rule 82 attorneys'  fees  within

the coverage of the Houston Casualty Company policy which will be

paid by Houston Casualty Company should the Bethel Superior Court

award  additional  funds."   No  argument  is  asserted  by   the

Therchiks  or  Grant Aviation that Houston Casualty  should  have

been  a  named  party in the continuing litigation  or  that  its

absence somehow affects the outcome of this appeal.

          C.   Endorsement 8 Does Not Satisfy 3 AAC 26.550.

           The  primary issue on appeal is whether Endorsement  8

satisfies the requirements of 3 AAC 26.550.  The Therchiks  argue

that  the  superior court erred in declaring valid an endorsement

that  neither  conformed  with Notice  A  nor  had  received  the

director's approval, as 3 AAC 26.550 alternatively requires.  The

regulation  requires  an insurer seeking to  limit  coverage  for

Civil  Rule  82  attorney's fees awards against  its  insured  to

include a "policyholder notice" that must either:

          (1)  conform with the division's
          
               (A)   Attorney Fees Coverage  Notice  A,
               dated March 29, 1996, and hereby adopted
               by  reference, for a policy with a  duty
               to  defend in addition to its  limit  of
               liability;
               
                                   . . . or
                         
          (2)   be  approved in writing by the director
          upon a determination that the proposed notice
          is substantially equivalent to the division's
          Attorney's Fees Coverage Notice A . . . .[21]
          
           It  is  undisputed that the director had not  approved

Endorsement  8  before  it was issued  to  Grant  Aviation.   The

controlling question therefore is whether Endorsement 8 satisfied

the alternative requirement that it "conform with" Notice A.

           The  superior court held that Endorsement  8  did  not

"conform  with"  Notice  A  but  was  nonetheless  "substantially

equivalent"  to  it.  The court defined "conform with"  as  being

"very  close  to  identical  [to]," and described  "substantially

equivalent"  as a "lesser standard."  In holding that Endorsement

8  validly  limited  the coverage, the court observed,  "although

there's  different wording used, different form used .  .  .   it

seems  to me that it is at least as good as Notice A in informing

an insured about the limitation and putting the insured on notice

that  part  of the attorneys' fees will not be covered under  the

policy."

           Grant Aviation first asserts that the endorsement need

not comply with the letter of 3 AAC 26.550, but must only satisfy

the  notice  requirements  established in  Russell  v.  Criterion

Insurance  Co.  - a case in which we upheld the  validity  of  an

endorsement  limiting an insurer's obligation to  pay  prevailing

party  attorney's fees awarded against the insured.22   There  we

relied  on  3  AAC 29.010,23 and interpreted that  regulation  to

require  that an insurer limiting coverage "must clearly disclose

the  limitation itself," and "must clearly disclose the insured's

potential  liability for attorney's fees if the judgment  exceeds

the liability limits of the policy."24  Grant Aviation argues that

Endorsement  8 is valid because it satisfies the requirements  we

discussed in Russell.

          Grant Aviation's reliance on Russell is misplaced.  The

regulation  on which we relied there, 3 AAC 29.010, was  repealed

in  July  1996,  after  we  decided  Russell.   The  Division  of

Insurance replaced 3 AAC 29.010 with 3 AAC 26.500-.550.  Division

of  Insurance  Bulletin 96-04 gave notice  to  insurers  of  "new

requirements  regarding  coverage  for  Alaska  Rule   of   Civil

Procedure 82."  The bulletin informed insurers that after July 1,

1996  the  division  required  that  policies  limiting  Rule  82

coverage  "must  satisfy  the minimum  standards"  of  the  newly

promulgated regulations.  In an order announcing the adoption  of

3 AAC 26.500-.550, the Alaska Director of Insurance explained the

1996 amendments as follows:

          [L]imitations  of coverage for attorney  fees

          taxable as costs against an insured according

          to  Alaska Rule of Civil Procedure 82 that do

          not    address   an   insured's    reasonable

          expectations for coverage or do  not  provide

          adequate    disclosure   of   the   insured's

          potential  uninsured liability constitute  an

          unfair  or  deceptive trade act.   Therefore,

          the  adoption or repeal of regulations  under

          this order is appropriate.

The  Russell  criteria  are therefore inapplicable  to  questions

arising  under the new regulations.  To be effective, Endorsement

8 had to comply with 3 AAC 26.550.25

           The superior court held that Endorsement 8, which  had

not   received  director  approval,  was  valid  because  it  was

"substantially equivalent" to Notice A.  A post-accident judicial

determination  of  substantial equivalence to  Notice  A  is  not

sufficient  to  satisfy 3 AAC 26.550.  Per  the  regulation,  the

director   must   determine   that   the   proposed   notice   is

"substantially  equivalent" to Notice  A  and  then  approve  the

proposed  notice  in  writing.   The  director  did  not  approve

Endorsement  8  before  it was issued.  Therefore  Endorsement  8

could satisfy 3 AAC 26.550 only if it "conforms with" Notice A.

           The  regulation  does not explicitly  define  "conform

with."   That  the alternative provision allows the  director  to

preapprove "substantially equivalent" proposed language  suggests

that the "conform with" provision contemplates a higher standard.

There  would,  after  all,  be  no  need  or  incentive  to  seek

preapproval if the two standards meant the same thing.  Likewise,

the opportunity to seek preapproval implies that the director has

the   administrative  expertise  to  distinguish  between   those

deviations  that  provide insureds with adequate  notice  of  the

proposed   limitations  and  those  that   do   not.    No   such

disinterested  expert  review occurs when  an  insurer  issues  a

limiting  endorsement without seeking the director's preapproval.

It  is  logical to require something more than mere  "substantial

equivalence" to Notice A in the absence of administrative review.

           The superior court recognized that "conform with" must

mean  something "very close to identical," rather than "word-for-

word  identical."   We agree with this observation  but  disagree

with superior court's ultimate findings.  The court's "very close

to  identical"  definition is workable because  it  accounts  for

minute  deviations, such as immaterial punctuation  errors,  that

would  not  diminish  the quality of notice  or  the  substantive

message.   The standard must be stringent, because anything  less

would  denigrate  the  administrative  expertise  that  fashioned

Notice  A  as a model for adequate disclosure and eviscerate  the

alternative  requirement for preapproval.  Moreover, any  dispute

about  conformity under subsection .550(b) will almost inevitably

arise  after  a  loss occurs.  It is by then  too  late  for  the

insurer to invoke agency expertise.

           Endorsement 8 does not "conform with" Notice A because

we conclude that the endorsement alters the model form's language

in  ways  that go beyond being "minute deviations."  For example,

Notice  A  directly  and forcefully informs  an  insured  of  its

exposure  to  an  award  of  Rule 82  attorney's  fees,  and  its

obligation to pay any fees not covered by the policy.   Notice  A

provides in part:

          Alaska  Rule  of Civil Procedure 82  provides
          that  if you are held liable, some or all  of
          the  attorney  fees of the  person  making  a
          claim  against you must be paid by you.   The
          amount that must be paid by you is determined
          by  Alaska  Rule of Civil Procedure  82.   We
          provide coverage for attorney fees for  which
          you  are  liable under Alaska Rule  of  Civil
          Procedure   82   subject  to  the   following
          limitation:
          
               We will not pay that portion of any
               attorney's fees that is  in  excess
               of  fees calculated by applying the
               schedule  for  contested  cases  in
               Alaska   Rule  of  Civil  Procedure
               82(b)(1)  to the limit of liability
               of the applicable coverage.
               
          This  limitation  means the  potential  costs
          that  may  be awarded against you as attorney
          fees  may  not be covered in full.  You  will
          have  to  pay  any attorney fees not  covered
          directly.
          
(Italics  in original; underline emphasis added.)  The underlined

language  is far more direct than the language in Endorsement  8,

which provides in part:

          Contrary  to  the general rule applicable  in
          the  United  States, Rule 82  of  the  Alaska
          Rules  of Court awards attorneys fees to  the
          party   which   prevails  in   bringing,   or
          defending   against,   a   claim.    [Houston
          Casualty]  will only pay a limited amount  of
          attorney's fees an insured is required to pay
          under Rule 82 of the Alaska Rules of Court.
          
          The  most  [Houston Casualty]  will  pay  for
          attorney's fees the insured is liable to  pay
          under  Rule 82 of the Alaska Rules  of  Court
          ("Rule 82") is that amount of attorney's fees
          the insured would be liable to pay under Rule
          82 if the claim was a contested claim and the
          amount  of the final award was equal  to  the
          limit   of   liability  for  the   applicable
          coverage stated in the policy.
          
          The limit of liability for Rule 82 attorney's
          fees   described  in  this  section  is   the
          absolute  maximum and will not  change  based
          upon the number of insured persons, vehicles,
          aircraft,  number of injured persons,  number
          of claimants, or number of claims arising out
          of the relevant occurrence.
          
          WARNING  OF  EXPOSURE TO  UNINSURED  ATTORNEY
          FEES
          
          The amount of attorney's fees the insured  is
          liable  to  pay under Rule 82 may be  greater
          than   the   amount  [Houston  Casualty]   is
          agreeing  to  pay  under  this  policy.   The
          insured   will   have  to  pay   the   excess
          attorney's fees charged under Rule 82.
          
(Emphasis added.)

          The differences are partly a matter of emphasis ("you,"

rather  than  "the  insured") and partly a matter  of  directness

("must  be  paid by you" and "you will have to pay," rather  than

"the  insured is required to pay").  Endorsement 8 and  Notice  A

are  similar  in  substance.  But the text of  Endorsement  8  is

longer than the text of Notice A.  Its sentence structure is more

complex,  and it is harder to read and understand.  Each sentence

in  the  quoted passage from Notice A averages about  twenty-five

words.   Each  sentence  from the quoted  Endorsement  8  passage

averages  about  thirty-eight words.   The  division  promulgated

section .550 to increase notice and to reduce disputes about  the

adequacy  of  notice provided.  In this context and  given  these

purposes, sentence structure and word choice are important.  And,

had Houston Casualty wanted to limit its attorney's fees coverage

using  its  own  language,  it  could  have  complied  with   the

regulation  by  submitting its endorsement to  the  director  for

preapproval.   Had it done so, the director might  have  required

Houston Casualty to simplify or alter its text and message.

           We  do  not  read Endorsement 8 to be "very  close  to

identical"  to  Notice A.  The differences  in  substance,  tone,

clarity,  and directness convince us that Endorsement 8 does  not

"conform  with" Notice A.  And because these differences diminish

the adequacy of the notice given, we hold that Endorsement 8 does

not satisfy 3 AAC 26.550.

          D.   Alaska Statute 21.42.220 Does Not Save Endorsement

          8.

           Grant Aviation argues that even if Endorsement 8  does

not  "conform with" Notice A, AS 21.42.220 saves the  endorsement

from invalidity.  That statute provides in pertinent part:

          An  insurance  policy, rider, or  endorsement
          issued  and  otherwise valid that contains  a
          condition or provision not in compliance with
          the   requirements  of  this  title,  is  not
          thereby   rendered  invalid  but   shall   be
          construed and applied in accordance with  the
          conditions  and  provisions  as  would   have
          applied had the policy, rider, or endorsement
          been in full compliance with this title.
          
           We  have  never  before cited  this  statute.   Alaska

Statute   21.42.220  was  enacted  in  1966,  when   the   Alaska

Legislature  completely revised Title 21, the  state's  insurance

code.26   Nothing analogous to AS 21.42.220 existed before  1966.

The  legislative history of the 1966 revision indicates that  the

legislature  modeled the revised insurance laws  after  Montana's

insurance  code.27 That code contains a "validity of noncomplying

forms" provision virtually identical to AS 21.42.220.28  However,

there is no Alaska legislative history specifically addressing AS

21.42.220.

           Montana and other states with savings statutes similar

to  AS  21.42.22029  interpret these provisions  to  save  policy

provisions  that  do  not conform with their insurance  codes  by

replacing   the   inconsistent  policy   terms   with   statutory

provisions.30  This usually, but not always, has  the  effect  of

reforming the policies in favor of coverage.

           In  Sagan  v. Prudential Insurance Co. of America  the

Montana   Supreme   Court  applied  the  Montana   "validity   of

noncomplying forms" statute to save a suicide exclusion that  did

not  comply with the state insurance code.31  Under the authority

of  the  savings  statute,  the court  substituted  the  relevant

statutory provision into the policy rather than invalidating  the

entire exclusion.32  The court observed that the plain meaning of

the  statute  is  "to  give  effect  to  insurance  policies  and

provisions  to  the fullest extent possible by reading  statutory

provisions  into  them  to  achieve  full  compliance  with   the

insurance  code.  Nothing in the plain language  of  the  statute

supports  applying it to invalidate policy provisions."33   Sagan

may  seem  to  use  Montana's  savings  statute  to  validate   a

nonconforming  policy provision, to the beneficiary's  detriment.

But  in  reality,  the  only  inconsistency  between  the  policy

provision  and the insurance code concerned the amount of  refund

payable if the insured died by suicide within two years after the

policy  was  issued.   The policy was actually more favorable  to

Sagan  than  the  code.  The court rejected  Sagan's  attempt  to

invalidate  the entire suicide exclusion on Sagan's  theory  that

the  refund provision deviated from the code.  The deviation  was

immaterial to the validity of the entire exclusion.

           Virginia applies its "validity of noncomplying  forms"

statute34  to  save  nonconforming insurance policies  when  they

impermissibly restrict the scope of coverage mandated by statute.35

When   an  insurance  policy  grants  more  coverage  than   that

prescribed by statute, the terms of the policy control.36  In Hill

v.  State  Farm Mutual Insurance Co., the Virginia Supreme  Court

observed that "[t]he superseding provisions of . . . [Code  38.2-

318] take effect only where an insurer seeks, by policy language,

to  narrow,  avoid, vary or restrict the coverage the legislature

has required."37

            Grant   Aviation  argues  that  AS  21.42.220   saves

Endorsement  8 from invalidity even though Houston  Casualty  did

not  obtain  the  insurance director's  written  preapproval  for

Endorsement  8.  In support, Grant Aviation cites  cases  holding

that  an  insurer's  failure to follow a  statute  requiring  the

insurer  to file all policy forms before issuing the policy  does

not  invalidate that policy.38  But the problem here is not  that

the  insurer failed to obtain preapproval, but that its  limiting

provision did not "conform with" Notice A.  Grant Aviation  cites

only  two  cases that mention statutes providing for the validity

of noncomplying forms.39

          Those two cases - Highland Insurance v. American Marine

Corp.  and  Williams  v. Metropolitan Life Insurance  Co.  -  are

inapposite.    The  courts there cited "validity of  noncomplying

forms" statutes in rejecting insureds' attempts to void otherwise

valid  policy forms merely because insurers failed  to  file  and

obtain approval for the policy forms.40

           Our case does not concern an insurer's failure to file

or obtain approval for an otherwise valid policy.  It involves an

insurer's failure to comply with a regulation promulgated for the

purpose   of   giving  insureds  adequate  notice  of   potential

attorney's  fees liability.  The division adopted 3  AAC  26.500-

.550  and  Notice  A because it found that inadequate  disclosure

constituted  an  unfair or deceptive trade act.   Grant  Aviation

cites  no  cases in which a court has held that a provision  that

materially deviates from the insurance code and that restricts or

excludes  coverage is effective under a "validity of noncomplying

forms" statute.

           There  are other reasons not to apply AS 21.42.220  to

validate  Endorsement 8.  First, applying the  statute  as  Grant

Aviation  proposes  would  effectively deprive  the  Division  of

Insurance  of authority to prevent nonconforming provisions  from

becoming effective.  On its face, Grant Aviation's reading of the

statute  would validate provisions that depart from  any  minimum

requirements  that the division, in legitimate  exercise  of  its

expertise, might require.  This would be an unusual result  given

the  extensive  regulation  of the  insurance  industry  and  the

regular  practice  of  states  requiring  insurance  policies  to

include particular provisions or model forms.

           Second, Grant Aviation's reading of the statute  would

undermine  the  regulation's critical purpose - to give  insureds

adequate  notice of a provision limiting coverage.   Reading  the

noncomplying form as though it does give the insured the required

notice  would  defeat the division's purpose in promulgating  the

notice  regulation  and model form.  Applied  as  Grant  Aviation

proposes, AS 21.42.220 would validate endorsements limiting  Rule

82  coverage  notwithstanding a complete failure to  satisfy  the

regulation.

           We  decline to read AS 21.42.220 to uphold a defective

provision that attempts to limit coverage.  We will therefore not

apply it to save Endorsement 8.

          E.     The  Division  of  Insurance  Had  Authority  To
          Promulgate 3 AAC 26.510.
          
           Grant  Aviation  also asserts that  3  AAC  26.510  is

invalid  because the Division of Insurance did not have authority

to  promulgate  that  regulation.   That  regulation  applies  to

insurance  policies with duty-to-defend provisions.  It  provides

in  relevant  part that "a policy under which an  insurer  has  a

right  or  duty to provide a defense for an insured must  provide

coverage  for  the  payment of attorney  fees  taxable  as  costs

against  the  insured under Alaska Rule of Civil  Procedure  82."

The  regulation  further requires an insurance carrier  to  cover

additional attorney's fees.41

           The  division cited several statutes from Title 21  as

its  authority for promulgating 3 AAC 26.510.42  Title  21  deals

with  insurance generally.  Grant Aviation claims that the  Title

21  statutes  cited  as authority for 3 AAC 26.510  only  "govern

matters  of  procedure, not substance."  Grant  Aviation  further

contends  that  Title  2  of  the Alaska  Statutes  contains  the

provisions that regulate the aviation industry.

           Grant  Aviation directs us to no provision in Title  2

that  expressly  or impliedly makes 3 AAC 26.510 inapplicable  to

air  carriers.  Title 21 gives the director authority  to  "adopt

reasonable regulations" to effectuate the purposes of the title.43

And  3  AAC  26.510  represents  a justifiable  exercise  of  the

director's  authority.   One section in Title  2,  which  governs

aeronautics, specifies minimum insurance limits for air carriers,

but   it   does  not  purport  to  render  Title  21   altogether

inapplicable to insurance for air carriers.44  It does not address

coverage for attorney's fees.  Nothing Grant Aviation has  argued

would justify a conclusion that the Director of Insurance had  no

authority to promulgate 3 AAC 26.510.

IV.   CONCLUSION

           Because  we  conclude  that  Endorsement  8  does  not

"conform with" the model form and thus violates 3 AAC 26.550  and

because  AS  21.42.220 does not save the endorsement, we  REVERSE

the  judgment  and REMAND for calculation of the attorney's  fees

recoverable under the policy.

_______________________________
1     Raymond  Therchik sued Grant Aviation individually  and  as
personal representative of Isadore Therchik's estate.  Katie Tony
sued  individually and as personal representative of Theresa  and
Henry  Tony's  estates.   The  other  plaintiffs  sued  in  their
individual capacities.
2     This  provision  of the policy Houston Casualty  issued  to
Grant Aviation states in part:

          During  such  time as [Houston  Casualty]  is
          obligated  to defend a claim or claims  under
          the  provisions  of the preceding  paragraph,
          [Houston  Casualty] will pay with respect  to
          such  claim,  in  addition to the  applicable
          limit of liability:
          
               . . . .

2.                        [A]ll costs taxed against the Insured in any suit
          defended by [Houston Casualty] . . . .
          
3    Endorsement 8 provides in part:

          [Houston  Casualty] will only pay  a  limited
          amount  of  attorney's  fees  an  insured  is
          required  to pay under Rule 82 of the  Alaska
          Rules  of  Court.  .  . . The  most  [Houston
          Casualty]  will pay for attorney's  fees  the
          insured is liable to pay under Rule 82 of the
          Alaska  Rules  of Court ("Rule 82")  is  that
          amount  of attorney's fees the insured  would
          be  liable to pay under Rule 82 if the  claim
          was  a contested claim and the amount of  the
          final  award  was  equal  to  the  limit   of
          liability for the applicable coverage  stated
          in the policy.
          
4    Simmons v. Ins. Co. of N. Am., 17 P.3d 56, 59 (Alaska 2001).
5    Id.
6    Holderness v. State Farm Fire & Cas. Co., 24 P.3d 1235, 1237-
38  (Alaska 2001); Russell v. Criterion Ins. Co., 917  P.2d  664,
666 (Alaska 1996).
7     See,  e.g.,  Holderness, 24 P.3d at 1238; State  Farm  Mut.
Auto. Ins. Co. v.  Harrington, 918 P.2d 1022, 1025 (Alaska 1996);
Hughes v. Harrelson, 844 P.2d 1106, 1106-07 (Alaska 1993).
8    See cases cited supra note 7.
9     See, e.g., Peter v. Schumacher Enters., Inc., 22 P.3d  481,
488-89   (Alaska  2001)  ("[P]rivate  actions  to   enforce   the
requirements of [AS 21.89.020] have been maintained and  approved
by this court"); Harrington, 918 P.2d at 1025-26; Burton v. State
Farm Fire & Cas. Co., 796 P.2d 1361, 1363 (Alaska 1990).
10     Peter, 22 P.3d at 490; see also AS 21.89.020(c) (requiring
automobile liability insurers to offer coverage prescribed in  AS
28.20.440  and 28.20.445 or AS 28.22 for "protection  of  persons
insured  under policy who are legally entitled to recover damages
for  bodily injury or death from owners or operators of uninsured
or  underinsured  motor  vehicles");  AS  21.89.020(e)  (allowing
waiver of the coverage in AS 21.89.020(c) and (d)).
11    Peter, 22 P.3d at 488; see also AS 21.90.020, which provides
in  part  that "[a] person, determined by the director, following
an appropriate hearing . . . to have violated a provision of this
title, is subject to a civil penalty of not more than $2,500."
12    Peter, 22 P.3d at 489.
13    Harper v. K & W Trucking Co., 725 P.2d 1066 (Alaska 1986).
14     AS  21.89.030 (1968), amended by ch. 62,  106,  SLA  1995.
Before it was amended in 1995, AS 21.89.030 provided:

          No  insurance company doing business in  this
          state may pay a judgment or settlement  of  a
          claim  in  this state for a loss incurred  in
          this  state with an instrument other  than  a
          negotiable  bank check payable on demand  and
          bearing even date with the date of writing.
          
15    Harper, 725 P.2d at 1068.
16    Id.
17    Id.
18    Id.
19    Id.
20     The Alaska Director of Insurance observed in Order R 96-03
that  "limitations of coverage for attorney fees taxable as costs
against an insured according to Alaska Rule of Civil Procedure 82
that  do  not  address an insured's reasonable  expectations  for
coverage  or do not provide adequate disclosure of the  insured's
potential  uninsured liability constitute an unfair or  deceptive
trade act."
21    3 AAC 26.550(b) (emphasis added).
22    Russell v. Criterion Ins. Co., 917 P.2d 664 (Alaska 1996).
23    Former 3 AAC 29.010 (1982) read in pertinent part:

          (a)    Any   policy  form  subject   to   the
          requirements  of  AS  21.42  which   provides
          defense,    settlement,   or    supplementary
          payments, may limit payments of attorney fees
          taxed against the insured as costs under Rule
          82  of  the  Alaska Rules of Civil Procedure.
          The  limit  may not be less than  the  amount
          which  would  be  allowed  under  Civil  Rule
          82(a)(1)  to  the  prevailing  party   in   a
          contested  case if the amount recovered  were
          equal  to the liability limit of the  policy.
          This  limit  must  be  in  addition  to   the
          otherwise  applicable limit of  liability  of
          the policy.
          
               . . . .

          (d)    An   insurer  limiting   coverage   as
          permitted in (a) of this section must clearly
          disclose  to  its insured the limitation  and
          the   insured's   potential   liability   for
          attorney   fees  if  judgment   exceeds   the
          liability limits of the policy.
          
24    Russell, 917 P.2d at 666.
25    The division promulgated 3 AAC 26.500-.550 in 1996.  Houston
Casualty issued the insurance policy at issue here for the policy
period of December 15, 1998 to December 15, 1999.  The air  crash
occurred on December 7, 1999.
26    Ch. 120,  1, SLA 1966.
27     Analysis  of House Bill No. 313 (Proposed State  Insurance
Code),  House Journal Supp. No. 12 at 3, 1966 House  Journal  431
("After careful study, it was determined that the insurance  code
of  the  State of Montana, enacted in 1961 by the Legislature  of
that  State,  would  serve as a good model for  the  revision  of
Alaska's  insurance laws. . . . [T]he Montana Code was  the  most
modern and up-to-date body of insurance regulation of any of  the
fifty states.").
28    Section 33-15-315 of the Montana Code provides:

          Any  insurance policy, rider, or  endorsement
          hereafter  issued and otherwise  valid  which
          contains  any condition or provision  not  in
          compliance with the requirements of this code
          shall  not  be thereby rendered  invalid  but
          shall  be construed and applied in accordance
          with  such conditions and provisions as would
          have  applied  had  such  policy,  rider,  or
          endorsement been in full compliance with this
          code.
          
Mont. Code Ann.  33-15-315 (2002).

29     Arizona,  Ariz. Rev. Stat.  20-1118 (2002);  Georgia,  Ga.
Code  Ann.  33-24-12 (a) (2002); Hawaii, Haw. Rev. Stat.  431:10-
238   (2002);  Kentucky,  Ky.  Rev.  Stat.  Ann.    304.14-210(2)
(2002);  Louisiana, La. Rev. Stat. Ann.  22:653 (2002);  Montana,
Mont.  Code  Ann.   33-15-315 (2002); Oklahoma, Okla. Stat.  Ann.
tit.  36,   3620  (2002); Virginia, Va. Code Ann.   38.2-318  (A)
(2002);   Virgin  Islands,  22  V.I.  Code  Ann.    845   (2002);
Washington,   Wash.  Rev.  Code  Ann.   48.18.510  (2003);   West
Virginia, W. Va. Code, 33-6-17 (2002).
30    See Taylor v. MFA Mut. Ins. Co., 322 So. 2d 842, 845-46 (La.
App. 1976)  (holding that three-month policy had to be considered
as  if  issued  for  statutory requirement of  six  months  where
insurer  issued  three-month policy  and  terminated  policy  for
failure   to  pay  renewal  fee  without  providing   notice   of
cancellation); USAA Cas. Ins. Co. v. Yaconiello, 309 S.E.2d  324,
325 (Va. 1983) (holding that statute's more inclusive term "motor
vehicle"  superseded policy's term "automobile"  because  statute
would  also  include motorcycles); Adkins v. Meador,  494  S.E.2d
915,  920-24 (W. Va. 1997) (holding that statute's more inclusive
requirement  that insured be "using" vehicle superseded  policy's
requirement that insured be "occupying" vehicle).
31      Sagan  v.  Prudential Ins. Co. of Am. 857 P.2d  719,  722
(Mont. 1993); see also Georgeson v. Fid. & Guar. Ins. Co., 48  F.
Supp. 2d 1262, 1266 (D. Mont. 1998) (applying MCA  33-15-315  and
ruling  that  when language of insurance policy  is  contrary  to
statute,  and  therefore  void, policy  should  be  construed  to
contain coverage mandated by law).
32    Sagan, 857 P.2d at 722.
33    Id.
34     Section  38.2-318(A) of the Virginia Code is substantially
similar  to AS 21.42.220.  It provides: "Any insurance policy  or
form  containing  any  condition or  provision  that  is  not  in
compliance with this title shall be valid, but shall be construed
and  applied  in  accordance with the conditions  and  provisions
required by this title."  Va. Code Ann.  38.2-318(A) (2002).

35    See Yaconiello, 309 S.E.2d at 325.
36     See Hill v. State Farm Mut. Ins. Co., 375 S.E.2d 727,  729
(Va.  1989)  (holding that uninsured motorist endorsement,  which
afforded broader coverage than that mandated by statute, was  not
superseded  by more restrictive term in statute); Interstate  Van
Lines,  Inc. v. Artis, No. LS 4398-2, 1991 WL 835002, at *6  (Va.
Cir. June 5, 1991) (holding that "validity of noncomplying forms"
statute  did  not  apply because policy's definition  of  insured
afforded broader coverage than that mandated by statute).
37     Hill, 375 S.E.2d at 729; see also 1 Lee R. Russ, Couch  on
Insurance  17: 14 (3d ed. 1998).  It provides:

          Where the statutes specify certain provisions
          which  must  form  a part of  a  contract  of
          insurance, and further provide that a  policy
          issued  in violation thereof should be valid,
          a policy which does not contain the statutory
          provisions is valid and must be given effect,
          but  the  provisions of the statute  must  be
          substituted for those of the policy where the
          two  conflict.  However, where the provisions
          of  the  policy  are more  favorable  to  the
          insured  than are the statutory requirements,
          the  policy provisions will be enforced.   In
          any  event, the insured is not in a  position
          to  accept standard provisions in his or  her
          favor  and reject those which are unfavorable
          to him or her.
          
(Footnotes omitted.)

38    Great Lakes Container Corp. v. Nat'l Union Fire Ins. Co. of
Pittsburgh,  PA,  727 F.2d 30, 32 (1st Cir. 1984)  (holding  that
insurer's  failure  to  follow  statute  requiring  policies   be
approved   by  insurance  commissioner  did  not  void   policy);
Resolution Trust Corp. v. Hedden, 879 F. Supp. 600, 602-03  (N.D.
Miss.  1995) (insurer's failure to submit exclusion for  approval
did  not  invalidate exclusion); Gary v. Am. Cas. Co. of Reading,
Pa.,  753  F.  Supp. 1547, 1551 (W.D. Okla. 1990)  (holding  that
failure  to  file endorsement does not render it void);  Cage  v.
Litchfield, 713 A.2d 281, 315 (Conn. Super. 1997)  (holding  that
endorsement not filed with commissioner was valid and  that  "the
imposition of a monetary fine or a penalty other than voidance is
sufficient  to  protect the efficacy of [filing statute]");  Home
Indem.  Co. v. Hoechst Celanese Corp., 494 S.E.2d 768, 773  (N.C.
App.  1998) (holding that insurer's failure to get form  approval
for  pollution exclusions did not void exclusions because,  among
other  reasons, statute that provides for penalties for  insurers
does not mention voiding policy as remedy).
39     See Highland Ins. v. Am. Marine Corp., 607 F.2d 1101, 1104
(5th  Cir.  1979) (holding that insureds could not  avoid  paying
premiums  due under policy by claiming that insurer's failure  to
file policy made it void); Williams v. Metro. Life Ins. Co.,  519
P.2d  1310,  1313 n.2 (Wash. App. 1974) (holding  that  insured's
beneficiary  could not collect on life insurance  policy  because
policy never became effective because insured misrepresented  his
health  on  application  form, even though application  amendment
slightly differed from form approved by insurance commissioner).
40     See Highland, 607 F.2d at 1104; Williams, 519 P.2d at 1313
n.2.
41    3 AAC 26.510.
42    The division cited AS 21.06.090; AS 21.36.150; AS 21.42.120,
.130, and .160 as authority for 3 AAC 26.510.  See 3 AAC 26.510.
43    See AS 21.06.090.
44    See AS 02.40.010(a).